When Homeownership Can Fit Into a Solid Financial Plan

A lot can be said about home ownership, like its overall value to a family or how much this purchase is going to cost. There is no doubt that purchasing a home is going to rock the foundation of an individual’s finances, but one thing that is overlooked at times is how this purchase can be woven into a financial plan. Purchasing a home can become a good investment that can amplify a person’s financial plan if enough time is dedicated towards making smart moves at various home ownership stages. There are a number of ways a person can maximize the benefits a home could offer, but two benefits homeowners should pay attention to are equity and tax benefits. The following is going to help homeowners understand how they could align equity and tax benefits effectively with a financial plan.

Talking About Equity

Equity is one of those things people talk about regarding homes, but some people do not fully understand what it is. In essence, it is the homeowner’s interest in a home. This interest increases given enough time due to a number of factors; for example, property value might increase with time, and that increases home equity. Part of the reason some homeowners invest in things like Home Owner’s Associations and making improvements to their homes is because these types of investments could improve equity. Another thing that helps increase a home’s equity is reducing the mortgage loan balance, which is part of the reason equity planning starts before buying your home.

What you want to do is take your time when you compare mortgages because a loan with low interest can be reduced quicker. You should also make sure you work on improving your credit before requesting a loan as this could help earn you a more favorable loan that you can pay off quickly. Understanding the power that lies in your equity should help you develop a better financial plan that could help you take savvy financial steps. Equity is something you can use just as you would use cash. It can help a homeowner invest in an additional home, a child’s education, or simply reserve it for a rainy day.

Now, a homeowner has a few ways to tap into his or her equity. The most common are taking out a home equity loan or applying for a home equity line of credit sometimes referred to as a HELOC. The rates for these types of loans or lines of credit are usually reasonable enough, meaning you can purchase your home or invest in a business without worrying too much about high interest.

Taking Advantages of the Tax Benefits

Mandatory taxes and mortgage interest are going to dig deep into any financial plan, but the reality is they can also give you a lot of benefits. The interest on your mortgage loan and the real estate taxes you owe as a homeowner are tax-deductible. It should be pointed out that capital appreciation does not really affect a homeowner who lives in the properry. You can exclude up to $250,000 in capital gain or home appreciation when you file taxes.

Another tax benefit comes form home remodeling costs or home improvements. Most additions, repairs, or remodeling costs are not going to offer a homeowner tax deductions, but there are a few exceptions. For example, there are a number of tax deductions offered to a homeowner who adds energy efficient improvements or solar panels. Keep in mind that these kinds of improvements still add value to your home that you may be able to benefit from as equity grows or when you sell your home.

It is important to point out that taking advantages of the tax benefits that come along with homeownership can get a little complex. Not only do you have to keep up with tax laws, but you also have to crunch a lot of numbers, which can get a little confusing if you are not familiar with this process. This is the reason you should definitely consider talking to a professional tax preparer before filing your taxes. Talk to a financial advisor about other steps you can take in order to fit homeownership into your financial plan. As you can see, it isn’t impossible, and there are a few perks ownership gives you as long as you think everything through.


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